Chancellor Philip Hammond confirmed in his speech yesterday to the party’s annual gathering in Manchester that the government would commit an extra £10 billion in funding to provide loans under the Help to Buy scheme through to 2021.
Hammond said that the move would help an estimated 130,000 more homebuyers over the next few years and renew the Conservative Party’s "commitment to Britain’s property owning democracy for the next generation".
But the plan came under fire during a fringe session organised by new centre-right blog UnHerd, with speakers warning that the move would inflate house prices.
Steven Norris, the former Conservative cabinet minister, said that the plan is "simply economically illiterate". "If you increase demand and you don’t increase supply, then prices rise," he said.
Norris added: "I’m really horrified that we are proposing to add another £10 billion at a time when we are being told we are severely constrained in terms of public spending into this, in my view, economically illiterate proposition."
The blog’s editor, Tim Montgomerie, founder of website ConservativeHome, said that Help to Buy "is one of the most stupid, economically irresponsible policies you can come up with" and warned that the "nakedly opportunistic" move would not solve the housing crisis.
He added: "An 11-year-old familiar with economics can tell you that if you do not increase supply, if you keep pouring money into the system, it will inflate house prices."
In the same session, Montgomerie called for green belt rules to be relaxed. He described green belt rules "as more pernicious than any regulation ever imposed on us by Brussels of any kind by a factor of four or five".
Citing a study by free market think-tank the Adam Smith Institute, Montgomerie said that building on only two per cent of the green belt could provide 750,000 homes.
"We swap it, we invest in better green belt elsewhere," he said. "But at the moment, the way we fetishise the green belt means that a lot of people are living in cramped housing, with long commutes and unaffordable homes. That’s unacceptable and it has to change."
Speaking in the same session, Nadhim Zahawi, the Tory MP for Stratford-on-Avon, suggested that planning rules should be relaxed to allow an extra storey to be built on buildings in London. "If we allowed London to go up one extra floor, it would increase the supply so much I believe it would have a significant impact on London property prices," he said.
Zahawi also said that the government needed to ensure that local authorities have the "bandwidth" to challenge developers when they "plead poverty" over affordable housing pledges. Affordable housing promises can be watered down quickly, he said, meaning that local communities end up losing the incentive for supporting new homes in their area.